Editore"s Note
Tilting at Windmills

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September 21, 2008
By: Hilzoy

Bailout

I'm sure everyone knows about this already:

"The Bush administration has proposed granting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from private firms as part of a program that Treasury Secretary Henry Paulson said "has to work.""

Some reactions: Dean Baker, Paul Krugman (1, 2, 3), CalculatedRisk, Douglas Elmendorf, Ed Paisley, Henry Blodget, Yves Smith, Mish, Willem Buiter, Luigi Zingales, William Greider, Sebastian Mallaby, Robert Reich.

Obama has called the proposal "a concept with a staggering price tag, not a plan", and has laid out the principles that he thinks should govern a bailout here. McCain was noncommittal on the administration's proposal, but criticized Obama.

Deciding what to do about the present financial crisis is beyond anything remotely resembling my expertise. However, like Steve Benen, I've been reading around, and I can't find a single decent economist who likes the plan. That scares me, since I expect that the political dynamics will go something like this: Paulson has proposed a plan; not to accept it would deeply damage confidence in the markets and make things much worse, regardless of whether it's a good plan or not; therefore, it will be passed. I hope the Democrats try to get some decent regulation and structural reform for all that money.

In the meantime, I do have a few other reactions:

First: throughout all this, I've been torn between believing in market discipline and wanting to avoid moral hazard on the one hand, and thinking that of course that commitment flies out the window if we're seriously threatened with economic collapse, on the other. But it's worth remembering that we could have avoided having to choose between these unfortunate options. All we needed to do was have people in government who believed in good regulation.

Second: if anyone ever tells me that Republicans are the party of fiscal discipline ever again, I will either dissolve in laughter or bite their heads off. I don't know which. You have been warned.

Third: in particular, if any Republican ever tells me that a hundred million or so is just too much to pay to make sure that kids have health insurance, I will definitely bite his or her head off.

Fourth: I do not want to hear people tell me that regulation cripples the economy, unless they are willing to admit that a lack of regulation can also cripple the economy. Not ever. I don't understand why anyone is so much as tempted to think that "regulation" is good or bad, as a whole: to me, that's like being for or against "things" or "people". Some regulations are good, some are bad; obviously, we want people in government who can tell the difference, and implement regulatory systems that work well. However, altogether too many of my fellow citizens were willing to listen to ideologues, and now we all get to pay for their mistakes.

Fifth: if Obama wins, he and the Democrats will, in all probability, have to be the grownups once again. Reagan spent us blind; Clinton got us out of debt again. Now Bush has spent us even blinder, and we will be tempted, yet again, to put our ideas and aspirations on hold for the sake of the country.

I would like to hear one Republican, just once, acknowledge this fact.

I should also say: as people go, I am pretty willing to step up and be a grownup, even when other people aren't. But I am just about at the end of my rope. What that means, in practical terms, is that while early in the 90s I was willing to put various plans on hold for the sake of the country and its fiscal stability, I now think: Democrats' willingness to be sane and fiscally responsible just enables the Republicans. I am not willing to play that game. So don't count on me to think that universal health insurance is something we just can't afford any more.

Republican fiscal conservatives: if you've lost me, you've lost a whole lot of people. Because this is not a way of thinking that comes naturally to me at all. So step up to the plate and reform your party. You can't count on us to do your dirty work.

Sixth: Paulson seems to me to be one of the better members of this administration. (A low bar, I know.) But he still answers to Bush and Cheney. They have already abused our trust too often. There's a price for that: not being trusted when you really need it. It's not Paulson's fault. Too bad.

Last, and certainly least: I'm hilzoy, and I approve this message:

"I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me."

I've always been partial to the idea of using the stocks for special occasions, when both exemplary punishment and the opportunity for ordinary citizens to tell lawbreakers what they think of them seem appropriate. Now seems like a pretty good time.

Hilzoy 5:17 PM Permalink | Trackbacks | Comments (112)

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Comments

Hilzoy, there's one other thing: Republicans have to sign a public pledge, cross their hearts, that they'll actually support equitable and adequate taxation to pay off this staggering liability they're signing us on to.

For over 25 years they've been moaning, pissing, crying over taxes, and for the last 15 years they've actively obstructed and destroyed exercise of the government's taxing powers.

Well, now they're relying on the "full faith and credit" of the federal government to save the world's economic system from their own follies. Except that they've crippled the full credit of the federal government, because its credit only comes from its taxing power.

They have to sign on promote taxation. If not, no deal.

Posted by: Altoid on September 21, 2008 at 5:35 PM | PERMALINK

Troubled myself, I researched online and found this on nakedcapitalism.com which seems to summarize it well:

"This puts the Treasury's actions beyond the rule of law. This is a financial coup d'etat, with the only limitation the $700 billion balance sheet figure. The measure already gives the Treasury the authority not simply to buy dud mortgage paper but other assets as it deems fit. There is no accountability beyond a report (contents undefined) to Congress three months into the program and semiannually thereafter. The Treasury could via incompetence or venality grossly overpay for assets and advisory services, and fail to exclude consultants with conflicts of interest, and there would be no recourse. Given the truly appalling track record of this Administration in its outsourcing, this is not an idle worry.

But far worse is the precedent it sets. This Administration has worked hard to escape any constraints on its actions, not to pursue noble causes, but to curtail civil liberties: Guantanamo, rendition, torture, warrantless wiretaps. It has used the threat of unseen terrorists and a seemingly perpetual war on radical Muslim to justify gutting the Constitution. The Supreme Court, which has been supine on many fronts, has finally started to push back, but would it challenge a bill that sweeps aside judicial review? Informed readers are encouraged to speak up.

Nouriel Roubini does not think it passes the smell test:

`He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy...''

Posted by: consider wisely always on September 21, 2008 at 5:36 PM | PERMALINK

Democrats' willingness to be sane and fiscally responsible just enables the Republicans. I am not willing to play that game. So don't count on me to think that universal health insurance is something we just can't afford any more.

A hearty AMEN to that. We've got limitless funds for bad ideas and the cleanup of bad ideas (tax cuts, war in Iraq, cleaning up the deregulation mess). Likewise, graft isn't a problem anymore (billions overcharged or just plain missing in Iraq, a Katrina rebuilding process overseen by Karl Rove and riddled with criminality, massive payoffs to drug companies in the Medicare bill).

But we never have enough money for necessary investments in our future? Health care, infrastructure, energy research & support--all of those NECESSARY INVESTMENTS are somehow threatened because we had to go into massive debt to pay off Republicans' screwups?

Forget it. Fixing our healthcare system isn't a luxury, it's a national imperative--we need a healthy & productive workforce, and we've GOT to get a handle on cost. Likewise, we have got to invest in our crumbling infrastructure; the stuff we built in 1950 just ain't gonna last forever.

I'm sorry, but you don't say Johnny can't go to college because we spent the money paying to rebuild the house after alcoholic daddy drove drunk and smashed the car through the living room. At a certain point, you FIND THE MONEY for the shit you NEED, and you make it harder for drunk daddy to go out and get drunk!

Posted by: anonymiss on September 21, 2008 at 5:37 PM | PERMALINK

I have an idea, instead of talking about this as a $700 Billion bailout, why not talk about the $700,000,000,000.00 bailout, or the $1,000,000,000,000.00 bailout? That about $2200 for every American man, woman and child in the US. And just reflect back about how long it took to pass this years much smaller stimulus package, and then to actually cut the checks and send them out. It was months.

Sometimes shorthand disguises the obscene.

Posted by: tomj on September 21, 2008 at 5:38 PM | PERMALINK

There is a simple, easy quid pro quo for the Bailout of Easy Street, I mean Wall Street: repeal the Bankruptcy bill.

Posted by: maxgowan on September 21, 2008 at 5:40 PM | PERMALINK

They've said it: they want to destroy the government (drown it in a bathtub). What will make people see this?

Posted by: John McCain: Serial Liar on September 21, 2008 at 5:42 PM | PERMALINK

Why is anyone even considering this plan? We're being told that if we don't give some people $700 billion dollars the world will end. If we even stop to think about whether this is a good idea the world will end. Normally when people tell you things like this, you laugh at them.

Posted by: DBake on September 21, 2008 at 5:43 PM | PERMALINK

Paulson seems to me to be one of the better members of this administration.

Really? See Dean Baker for his long history of lies about this economic crisis.

Posted by: Walker on September 21, 2008 at 5:49 PM | PERMALINK

Walker: as I said, it's a low bar. He's better than Rumsfeld, better than Gonzales, God alone knows he's better than Cheney, lies or no lies.

Posted by: hilzoy on September 21, 2008 at 5:52 PM | PERMALINK

"So don't count on me to think that universal health insurance is something we just can't afford any more."

On the contrary, it is clear that we cannot afford not to implement universal health care. Along with other programs, it will help Americans weather the shit stirred up in Washington and on Wall Street.

" Paulson seems to me to be one of the better members of this administration."

"I've always been partial to the idea of using the stocks for special occasions"

How about we tie Phil Gramm to a post and have him horse whipped? That should appeal to those who want to return us to the 19th century.

Huh-uh. Don't be fooled. Lex Luthor in glasses.

Posted by: patm on September 21, 2008 at 5:55 PM | PERMALINK

Republicans are the party of fiscal discipline.

(Ducking)

Posted by: Bob R. on September 21, 2008 at 5:55 PM | PERMALINK

Paulson may be good-However he still must answer to Bush and Cheney so any plan is really not going to be good unless it makes the CEO's , CFO's and wealthy spend a lot of money to clear this up. the Average Taxpayer should not have to foot the brunt of this bill. Anything that comes out of this Administration will surely put the onus on the taxpayer and give the wealthy a break. The Bankruptcy law should be reviewed and changed to favor the American worker and not corporations before there is any agreement.The interest on credit cards shoud be capped at 8% so as not to allow corporations and banks to continue gouging the American consumer and taxpayer. The supreme courts agreement not for equal pay for the female wage earner should be reversed.The rich should have to pay a hefty tax on all their real estate transactions just as the average tax payer does now.

Posted by: ml johnston on September 21, 2008 at 5:56 PM | PERMALINK

One line of thought is that this hamstrings the next administration, and now they must give up all their economic plans.

To me this seems absurd. If the plan was supposed to strengthen the economy, those efforts must be redoubled.

The rich must pay even higher taxes. If they are truly hurting, their taxes will go down in dollar amounts anyway. Individuals will need even more help with home loans because there will now be much less credit available, or it will cost more. You can borrow $700,000,000,000 and not make credit harder to find.

But Obama's response was honest: where's the plan? His brief outline of principles is longer than the Paulson plan.

What ever happened to the concept of not throwing good money after bad?

Posted by: tomj on September 21, 2008 at 5:57 PM | PERMALINK

I meant that Paulson is Lex Luthor in glasses.

Should have used preview.

Posted by: patm on September 21, 2008 at 5:57 PM | PERMALINK

> Walker: as I said, it's a low bar. He's
> better than Rumsfeld, better than Gonzales, God
> alone knows he's better than Cheney, lies or no
> lies.

How do we know? That right there is the question. The judge who just rejected Addington's argument that Cheney's e-mail is forever beyond archiving much less subpoena observed that the plaintiffs seemed to be on the right track: Addington's line of argument alone was evidence that Cheney couldn't be trusted on the e-mail issue. They lie and lie and lie again. Then they lie about it, and turn over anyone who objects to the Justice Dept for prosecution and jailing. Paulson was approved by Cheney. Paulson is under Cheney's control [1]. Please explain in detail how we can trust him.

Cranky

[1] in the more extreme version, Cheney has the same access to Total Information Awareness intercepts that Rove used to destroy others who didn't toe the line.

Posted by: Cranky Observer on September 21, 2008 at 5:59 PM | PERMALINK

Amazingly fantastic post--I'm with you 100 percent.

Posted by: on September 21, 2008 at 5:59 PM | PERMALINK

One of my internet heroes, Glenn Greenwald, with a link to calculatedrisk.blogspot.com notes:

"UPDATE: Here is the current draft for the latest plan. It's elegantly simple. The three key provisions: (1) The Treasury Secretary is authorized to buy up to $700 billion of any mortgage-related assets (so he can just transfer that amount to any corporations in exchange for their worthless or severely crippled "assets") [Sec. 6]; (2) The ceiling on the national debt is raised to $11.3 trillion to accommodate this scheme [Sec. 10]; and (3) best of all: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency" [Sec. 8].

Put another way, this authorizes Hank Paulson to transfer $700 billion of taxpayer money to private industry in his sole discretion, and nobody has the right or ability to review or challenge any decision he makes."

Posted by: consider wisely always on September 21, 2008 at 6:01 PM | PERMALINK

And I would point to the example of what happened to Qwest and their executives when they refused to cooperate with Cheney's illegal domestic spying program vs what happened to AT&T which cooperated. I don't care who it is or what their reputation is: unless there is non-Republican oversight with power of subpoena and indictment I don't trust any of them.

Cranky

Posted by: Cranky Observer on September 21, 2008 at 6:03 PM | PERMALINK

The stocks? Forget it - let's "decorate" every lamp post on Wall Street with one of these pinstriped pimps dangling from it. You can bet the rest of the cabal would "get the message" real fast.

Posted by: TCinLA on September 21, 2008 at 6:11 PM | PERMALINK

The entire bailout is simply corporate welfare and payouts to investors.

It is both morally repugnant as well as against capitalist efficiencies to socialize risk and privatize profit.

I live in a home I can afford. For the past quarter I have been hgeaaring various schemes which all come down to the same thing: a) my paying they guy/gal who bought and enjoyed a place that was bigger when they had no more income than I, b) subsidizing that homeowner's profit potential v risk at my expense c) having the risk cost of the speculative lenders who lent him/her the money offloaded to me.

Now comes the second logical shoe to drop: a staggeringly massive bailout of the people who insured the loans -- at great profit for years.

This is nothing to do with the evils of unfetter capitalism in terms of the robber barons of old. It is a swing the other way, massive corporate and investor welfare.

I am a capitalist. I am a small business owner. But I have taken my lumps.

Not one dime should be spent on this loan insurance bailout, or any direct or indirect housing bailout. Housing is profoundly overvalued. We are just creating an even bigger problem and bigger expense (not far) down the road. WE are not fixing anything. We are just shifting tax money from the pockets of risk averse people to risk takers.

Posted by: S2 on September 21, 2008 at 6:15 PM | PERMALINK

Seventh: The US's principled authority to demand market-based financial reforms in other countries has taken a major hit. Ironic that this administration has managed to cripple yet another conservative claim to US global leadership.

Posted by: has407 on September 21, 2008 at 6:15 PM | PERMALINK

A genius named Timothy said this:

Someone Wrote
(and I think it was Robert Franklin) that "this is absolutely part of the continuing Republican scheme to do as much damage to the federal government as possible. Grover Norquist announced the policy 25 or so years ago as reducing the size of the federal government to where we could 'drown it in the bathtub.' The pattern is (1)deregulate a certain industry, (2) make enormous sums of money off the deregulation, (3) when the deregulated house of cards collapses, get bailed out by the taxpayers, which (4) increases federal government deficits which requires (5) a reduction in the size of the federal government."

Norquist has always seems to function as the elite's Moriarty to the peoples' Holmes, a lurking criminal who guides his crew of malefactors from behind the scene (although the analogy is decidedly imperfect, since Moriarty was eventually destroyed). Such "conservatives" desire the death of, especially, Medicare and Social Security. At this rate, that desire will be fulfilled if, indeed, it hasn't been already. Whether the term for this is socialism, nationalism or anything else seems to me largely beside the point. It is theft by any other name. That Democrats refuse to address this Norquistian goal is a demonstration of their embrace of this grand scheme. At this point, I suppose, that would surprise few.

Posted by: it would surprise few on September 21, 2008 at 6:16 PM | PERMALINK


Paulson is a crook, and completely full of shit! You can hear it in his evasive answers, see it in his lying mug and probably smell it in his presence.

Obama should address the fact that the outgoing administration is just that, outgoing...as in they all are not staying, so Paulson should be circulating his resume rather than circulating this bullshit!!

Posted by: Styve on September 21, 2008 at 6:17 PM | PERMALINK

"Republicans are the party of fiscal discipline."

*bites Bob R's head off. Growls menacingly.*

Posted by: hilzoy on September 21, 2008 at 6:19 PM | PERMALINK

There should be a fine on the personal assets of these chairmen, CEOs and CFO's. Something to the tune of $20 million. I'm pretty sure they can afford it. OR we should sell off their houses to rich moguls from Shanghai and Bombay.

Posted by: Freedom Fry on September 21, 2008 at 6:21 PM | PERMALINK

Bernie Sanders says "The current financial crisis facing our country has been caused by the extreme right-wing economic policies pursued by the Bush administration. These policies, which include huge tax breaks for the rich, unfettered free trade and the wholesale deregulation of commerce, have resulted in a massive redistribution of wealth from the middle class to the very wealthy.
The middle class has really been under assault. Since President Bush has been in office, nearly 6 million Americans have slipped into poverty, median family income for working Americans has declined by more than $2,000, more than 7 million Americans have lost their health insurance, over 4 million have lost their pensions, foreclosures are at an all time high, total consumer debt has more than doubled, and we have a national debt of over $9.7 trillion dollars.

While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s. The top 0.1 percent now earn more money than the bottom 50 percent of Americans, and the top 1 percent own more wealth than the bottom 90 percent. The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president. In the midst of all of this, Bush lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers or nurses."

http://www.huffingtonpost.com/rep-bernie-sanders/billions-for-bailouts-who_b_127882.html

Posted by: they're making out like bandits on September 21, 2008 at 6:22 PM | PERMALINK

If this bailout goes through the Night of Broken Glass won't have to wait for McCain/Palin. Bush conservatives will have done it themselves as one final fuck you to America.

Posted by: grinning cat on September 21, 2008 at 6:26 PM | PERMALINK

A clawback provision would be nice, as long as we're opium-dreaming. All current or former officers of all companies bailed out to disgorge all compensation of any kind made to them by the bailed-out company, and all interest or investment income accruing to them from any such compensation, over the past five years, to offset the cost of the bail-out.

Posted by: on September 21, 2008 at 6:28 PM | PERMALINK

If Paulson's so smart, why is his proposal so dumb?

3 pages? Most of which are filled with fiats, ultimatums, and blanks to be filled in later? I could have written something more rigorous.

As Obama said, it's not even a plan, it's a concept.

No safeguards, no guarantees, no details at all.

I suppose it's simple, and would indeed steady the markets for a while.

But this is $700 billion we're talking here.

Posted by: lampwick on September 21, 2008 at 6:33 PM | PERMALINK

This is it yes, yes, yes only with no limitations.

“This is a financial coup d'etat, with the only limitation the $700 billion balance sheet figure.”

Not at all, there is no financial sheet here there is no accountability. Actually there is substantial evidence that legally shows Congress also has ignored the fundamentals in the Constitution to protect the rights of American citizens. No monies are to be distributed with out Congressional approval.

If not the Treasury Secretary, Federal Reserve Board and the Senate banking Committee should be sequestered along with all those Senators that agreed to this treason to the American people. For what ever you may consider there essentially is no public free economy by the people and for the people, America is in economic lock down via Bush and Company.

`Trust me; I'm going to do it right if you give me absolute control.' This is not a monarchy...''

For me an intuitive thought is that not only are these problems with real estate, stocks and the military operations for years have been driven by the Bush Conglomerate and the basic media is complicit, along with the Arabs are liquidating all their property and stocks. This is the real war the Wahabbi Arabs really wanted, Americas internal division and distrust; it is working and now rampant.

Posted by: Megalomania on September 21, 2008 at 6:35 PM | PERMALINK

TCinLA,

It's getting to the point where that might be the only answer.

Posted by: grinning cat on September 21, 2008 at 6:50 PM | PERMALINK

"That would just be petty and childish, and completely in character for me." Me too. Where do I sign up?

Posted by: EL on September 21, 2008 at 6:51 PM | PERMALINK

Good - Pelosi not about to cave (for now).

“Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers’ interests. The Administration’s $700 billion proposal does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation."

“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street."

http://thepage.time.com/pelosi-statement-on-legislation-to-address-crisis-in-financial-markets/

Posted by: lampwick on September 21, 2008 at 6:57 PM | PERMALINK

Spank one to educate a hundred.

Posted by: Dr. Spank on September 21, 2008 at 6:57 PM | PERMALINK

Once the wreckage clears, at this point you might as well treat the Wall Sters like criminals. One irony of the Bushco Admin mauling the Bill of Rights is that it makes it ridiculously easy to get wiretaps and info on criminals. Start swinging the RICO stick and hard.

You won't change the crazy and stupid, but if you can remove their resources it makes it easier to control.

Posted by: Former Dan on September 21, 2008 at 7:08 PM | PERMALINK

Well, it seems a wipeout was narrowly averted (so far), at least “according to the market” - see, in this economy the stock market is “the” market. Why? Because “we the people” had the burden placed on our long-suffering shoulders, that’s why. As for what we should get in return, below is adapted from my comment in a thread at Brad DeLong’s literate and fascinating blog:

Since the public is basically bailing out “the financial system”, then: the public should, in some sense and to a substantial extent, be given “ownership” of the financial system. Any private entity that took on such a burden would demand ownership and/or other rights, and so should we. I don’t mean just ordinary individualized market participation (which they already have, however mangled) or just “the government” acting as a government (especially considering that the G. is largely, effectively owned by the same sort it is bailing out the most.) I mean literally “as” the public, in a communal effective way similar to what being in a genuinely employee-owned company is like.

Reflect on that and hash out what it should consist of in particular, the thrust of it cannot morally be denied. The people should demand it, they will if they appreciate what happened to them and respect their interests.

Posted by: Neil B on September 21, 2008 at 7:13 PM | PERMALINK

Don't forget that Hank Paulson was one of the most successful people on Wall Street ever. He never fell for the sub prime mortgage crap.

The other interesting thing about Paulson is that he probably got paid more than any other federal employee in history by a huge margin.

As chairman of Goldman Sachs he probably had something approaching a half billion dollars in Goldman stock. His basis was very low and he would have had a HUGE capital gains tax if he tried to diversify.

Luckily for him, he was forced to sell his Goldman stock when he became Treasury Secretary. However, the law allowed him to defer the capital gains tax. My guess is that he has his millions in an index fund.

The net effect of this is that Paulson's portfolio is worth at least $50 million and potentially $150 million more than it would be worth if he didn't take a high level government job.

And don't let the fact that Paulson is a personal friend of a personal friend of mine influence your opinion of this post. I have never met him myself.

Posted by: neil wilson on September 21, 2008 at 7:13 PM | PERMALINK

This is like telling the FOX to keep the accounting books of how many hens are in the henhouse.

Posted by: Jet on September 21, 2008 at 7:16 PM | PERMALINK

Perhaps this financial meltdown will finally end once and for all the Reagan Era with its cunningly simple idea that the government is not the solution to our problem it is THE problem. That simple idea has been at the core of so many of our problems over he past 30 years. It has made us ungovernable. It has forced us to borrow money to continue the necessary costs of a necessary government because one party -- the GOP -- will never raise taxes even when necessary and the other can't for fear of retaliation. It has also enabled an attack on our democracy, because a democracy requires institutions and instrumentalities by which to effect its wishes, and that requires a state, a government. Without the state, power does not vanish it simply devolves into private hands, as we have now, where we resemble an oligarchy. So, perhaps this crisis will now enable us to have a more productive debate about the proper role of government, now whether we should have government at all.

Posted by: Ted Frier on September 21, 2008 at 7:22 PM | PERMALINK

Can anyone explain to me why we always seem to be faced with either disaster or acquiescing to ridiculous Republican plans? When did we pass the law saying it was illegal for the Democrats to offer constructive legislation? For God's sake, the US isn't a parliamentary system. We don't have to wait for the administration to offer a plan. Why haven't the Democrats been locked in a room all weekend coming up with their own competing bill?

Oh, I forgot. When Jimmy Carter lost, the Democrat abdicated its spine. Like that character from The West Wing said, we act like someone being hit who cowers in a corner and begs, Please don't hit me again. It's time to stand up and hit back. We elected a Democratic Congress to exert, you know, Congressional leadership. This is a prime opportunity and once again the so-called leadership is falling on its ass.

Don't let the debate be between "Grant the Bush administration unprecedented, unregulated financial authority or see the system collapse". Force it be between "Take another chance on Bush, or do this eminently more reasonable thing".

Gah! Sometimes I wonder why we even bother having an opposition party at all...

Posted by: Bernard HP Gilroy on September 21, 2008 at 7:25 PM | PERMALINK

Fifth: if Obama wins, he and the Democrats will, in all probability, have to be the grownups once again. Reagan spent us blind; Clinton got us out of debt again. Now Bush has spent us even blinder, and we will be tempted, yet again, to put our ideas and aspirations on hold for the sake of the country. -- Hilzoy

Can't remember who it was -- couldn't have been Krugman, who's star-struck, when it comes to the Clintons -- but, in '04, when it looked like Kerry was gonna win and be saddled with Bush's debt, someone wrote an op-ed in NYT.

In it, that person said that it had been a mistake on Bill Clinton's part to pay off the debt. That it would have been more sensible to just maintain and service the debt and plow whatever extra money there was into things which the *people* needed -- infrastructure, healthcare, etc. That, once Clinton managed to pay the debt off, Bush the Lesser felt all that much more empowered to play ducks and drakes with the surplus -- as Repubs are *always* prone to do.

I could definitely sympathise with that point of view. And I think that, if Obama is the one in the WH come January, he should *not* repeat Clinton's mistake. Try to renegotiate the terms maybe, but don't pay off the principal. If there's extra money left, spend it on us instead.

But that, of course, presupposes that this "deal" won't get through. Because, if it does, not only will we never be able to pay it off, but we might have problems even servicing the debt; just the interest alone will cripple us forever.

I'm just waiting for the Chinese govt figures to show up here and start demanding things like Great Lakes, Grand Canyon, Statue of Liberty etc, as their interest payments. They can have Alaska, though :)

Posted by: exlibra on September 21, 2008 at 7:25 PM | PERMALINK

Note the ABC round-table discussion this AM about McCain--see clips posted--they all sounded genuinely afraid with the prospect of McCain at the helm.

McCain was determined to show his true colors this week as decidedly 'incoherent' and 'un-presidential'.

It was aptly noted McCain continues to place:
'Vehemence ahead of Coherence'.


Posted by: on September 21, 2008 at 7:25 PM | PERMALINK

“Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." -Sir Josiah Stamp Director of the Bank of England (appointed 1928)
Reputed to be the 2nd wealthiest man in England at that time.

Posted by: Jet on September 21, 2008 at 7:27 PM | PERMALINK

Democrats should refuse to pass any legislation until Bush shows his face on national tv during an evening address and begs for it.

Let him own this crap.

Posted by: lampwick on September 21, 2008 at 7:39 PM | PERMALINK

great post, hilzoy. Especially this part:

"Fifth: if Obama wins, he and the Democrats will, in all probability, have to be the grownups once again. Reagan spent us blind; Clinton got us out of debt again. Now Bush has spent us even blinder, and we will be tempted, yet again, to put our ideas and aspirations on hold for the sake of the country.

I would like to hear one Republican, just once, acknowledge this fact.

I should also say: as people go, I am pretty willing to step up and be a grownup, even when other people aren't. But I am just about at the end of my rope. What that means, in practical terms, is that while early in the 90s I was willing to put various plans on hold for the sake of the country and its fiscal stability, I now think: Democrats' willingness to be sane and fiscally responsible just enables the Republicans. I am not willing to play that game. So don't count on me to think that universal health insurance is something we just can't afford any more."

Posted by: raft on September 21, 2008 at 7:40 PM | PERMALINK

Thanks Jet, for reminding us that the economy can't be a "free market" of trading of currency for goods and services, because the currency itself is created and must be allocated by a political process. The entire basis of Reaganism, libertarianism, etc. is an logical fraud because of this. Hence, the system might as well be run on behalf of the people since *someone* has to run it, it can't be "natural."

Posted by: Neil B on September 21, 2008 at 7:45 PM | PERMALINK

The organizations seeking bailout need to convene emergency meetings of their boards and present the US with a list of painful measures they will undertake to deserve any sort of rescue. Haircuts for investors, financial penalties for organizational leaders and a desire for greater strictures on their operations so they will not put the investing public and the tax paying public in this circumstance again. Let Adam Smith's legendary invisible hand smack these fuckers upside the head for treating other people's money with such malicious disregard while corporate execs enriched themselves.

Trying to keep the US economy from utter collapse is one thing, but giving unscrupulous corporations a get out of jail free card for screwing the pooch is unconscionable.

People spend more time figuring out which big screen TV to buy than the Bush administration thinks is necessary to blow $700 billion on one of their patented "trust me" schemes. No blanks checks. This has " we will be greeted as liberators" written all over it.

Posted by: petorado on September 21, 2008 at 7:45 PM | PERMALINK

I'm happy to be a grownup about moral hazard, so long as some of the sober adulthood spills over to helping ordinary families and struggling home owners. I don't know which security my mortgage is backing, but if the government buys it, I think I should be able to refinance cheap. The August 30-year Treasury Bond rate was 4.5% and that sounds about right to me.

Otherwise, all adulthood is out the window, and I'm calling it the "Bending Responsible Homeowners Over for a Triple Screwing" Act.

Posted by: Aatos on September 21, 2008 at 7:47 PM | PERMALINK

"So don't count on me to think that universal health insurance is something we just can't afford any more."

And make that universal, single-payer, health insurance.

I want someone to tell me what disaster is being avoided here, and how and why a $700-billion dollar band-aid is going to help.

Frankly, I'm beginning to wonder if the only way out is through. Maybe we just need to go down, down, down, maybe the only way to clear the rot out of the system is to let the sun shine in; Americans need to face the reality that the conservative movement--and anyone who voted for GWB in 2004--has succeeded in destroying the USA. Whether or not we borrow another $700 Billion from the Chinese to hand over to the moguls, what is ahead for Americans is one mess after another (the airlines, the automotive industry, dependence on oil), a weaker, poorer nation and the dawning realization that, frankly, we've been robbed.

And, of course, the Republicans will try to pin the blame on the Democrats. We will know that we are truly through the mess when admitting you are a Republican has the same social impact in polite circles as admitting you served time for murder.

Posted by: PTate in MN on September 21, 2008 at 7:47 PM | PERMALINK

I think we should talk about impeachment and reregulation along with heads rolling, government heads that is!

How about opening the fuel reserves, pumping money back into American with cheap energy cost - as peak oil was nothing but a damn lie that Bush drove the nation into with his faux energy price gouging. If ExxonMobil couldn't lie about peak oil, well maybe we wouldn't be in such dire straights to begin with, as Bushie and his lying gang of thieves and West Texas Mafia cohorts are the reason for the current market panic.

How about impeachment and pulling America out of Iraq, as we can buy oil from Iraq cheaper than we get if from ExxonMobil anyway, as we never need any Western Oil Contracts or unbid hostage scenarios, just an open market, one that doesn'tt favor Repug lobbiest.

How about telling Bushie, if the nation is bankrupt and since you ran as American's CEO, isn't time to step down for the good of the nation, seeing as how Bushie ran it into the ground. Isn't it past time CEO Bushie and Dickie got the axe for what they did.

Dems never take the bull by the horns, but Repugs would make all this about Bushie if Bushie were a Dem trying to peddle this shit, running the this scam "here" Dems should go on defense over Bushies mis-management and ASK for impeachment at long last.

Bush lied us to this point so why not let CEO Bushie and his VP get the Axe. Why do Dems keep helping Bushie hide all his crimes?

But Obama just keeps saying "yes-sir boss" and kissing Bush *ss.

Posted by: Independent Perspective on September 21, 2008 at 7:50 PM | PERMALINK

considered wisely always @ 5:36,

That says it for me. The scale of this crisis has overflowed the boundaries of constitutional government; Congress is not a lawmaking body in this, it is one party to a naked bilateral monopoly, at a severe bargaining disadvantage (lack of expertise, lack of experience, many voices). Sadly, I don't think they're up to the brinksmanship that a situation like that demands. As you say, more than money is at stake; providing this much cash to Treasury, with no oversight whatever, will actually give it a stake in continuing crisis, which it can leverage into a widened authority over time. In the notorious "long run", it's un-Magna Carta time.

Didn't think Bush's nepotism and blustering would actually break government itself. Must have "misunderestimated" him -- hope he's reading this, he'll really get a kick out of that one.

Posted by: Jassalasca Jape on September 21, 2008 at 7:51 PM | PERMALINK

I, for one, will stand up and reject this hilzoy-approved message. Republicans have sought a new level of uber-greed; they have attained their sought-after level of uber-greed; they have wrought destruction unimaginable, and have broken the piggy bank. Now, they want us to provide them with $700 billion, and for what? BAND-AIDS AND PRE-SCHOOL GLUESTICKS? Paulson himself can only say: This has to work.

Well, guess what? No one knows what to do if it doesn't work, because there IS no "Plan B."

Or---perhaps everyone has forgotten the Iraq debacle, whereby Plan B is nothing more than to proceed with Plan A. In this case, Plan B will always be Plan A---suck the Treasury deeper and deeper into debt by flushing money down a bottomless pit called Infinite Greed.

No---Republicans broke the regulatory process that would have protected this economy, and then they broke this economy. It isn't my responsibility to fix the blasted thing---it's theirs. Let Bush, and Cheney, and Paulson, and the whole entirety of the GOP go to their friends---the ones who reaped the benefits of this "deathful harvest"---and tell them that it's their turn to step into the cross-hairs. Let those who gained from the creation of this thing---this unholy creature sewn together from the putrid remnants of deregulated morbidity known as "the Bushenstein Monster"---pay the $700 billion tab.

If they don't pay, then let the whole damned house of cards fall.

As I see this, if an investment entity goes belly-up and bails on its debts via bankruptcy, then a bankruptcy judge can simply declare those
debts completely discharged. If those discharged debts just happen to include 40-to-50,000 or so defaulted mortgages, then those mortgages will simply cease to exist---just as if you or I went through bankruptcy.

So---why should I pay $700 billion to bail out the bull in the china shop, when I can simply rescue the china shop---and its contents---by sending the bull to the slaughterhouse?

I save myself $700 billion, and get a freezer full of steaks in the bargain as well....

Posted by: Steve on September 21, 2008 at 7:53 PM | PERMALINK

The shorter Paulson:

"Nice little economy ya' got there. Be a shame if something happened to it."

In the old days they would have called it extortion.

Posted by: Dennis - SGMM on September 21, 2008 at 7:53 PM | PERMALINK

So don't count on me to think that universal health insurance is something we just can't afford any more.

This makes no sense. Everybody else that has universal health care, pays less per capita, and all but one or two of them live longer, and spend less time sick, and have lower infant mortality. Universal health care is not only affordable, it is a money saver. We'd have to work extra-hard to screw it up. Seriously, are our bureaucrats ruder than the French? Less efficient than the Spanish or Italians? More pedantically rule-following than the Germans?

And yes, I know that's all a bunch of stereotypes, but so's the "inefficient government bureaucracy" canard.

Posted by: dr2chase on September 21, 2008 at 7:56 PM | PERMALINK

Anybody remember that EVIL PRESIDENT that GOT A HUMMER?

Boy, were those the good old days...

Posted by: Glen on September 21, 2008 at 7:58 PM | PERMALINK

And for the present...

No back room, bum's rush, lame duck President deals.

Banks that made bad loans and go broke are bankrupt. We can buy them for cents on the dollar after they fail.

Use taxpayer money to pump up the FDIC and protect Americans.

Write/call your Senator and Congressperson NOW! No deals with the lame duck. This is the next's President's problem to fix - not the $hithead that caused it.

Posted by: Glen on September 21, 2008 at 8:03 PM | PERMALINK

The Bush administration has been the most audacious in history, and the fact that they are on their way out the door has only sharpened their talents. It's mind-boggling that, even in a historical financial crisis, they should submit a "plan" that's literally three pages long! That, on the basis of those pages we should give any single person unquestionable and unappealable access to that much money? Toujours l'audace, indeed!

Humiliating them with credit counseling is too good for them. We should be more creative. I like compulsory military service, preferably in Iraq or Afghanistan, at basic pay grade, to continue until they've been able to save enough (on their DOD paycheck alone) to buy themselves out of it. Their ticket out? A sum equivalent to their 2007 income, with bonuses.

Posted by: biggerbox on September 21, 2008 at 8:05 PM | PERMALINK

from above

"Why is anyone even considering this plan? We're being told that if we don't give some people $700 billion dollars the world will end. If we even stop to think about whether this is a good idea the world will end. Normally when people tell you things like this, you laugh at them."

I say let em file Bankruptcy and use the 700 billion to make sure the money flow keeps flowing

Posted by: on September 21, 2008 at 8:06 PM | PERMALINK

This is amazaing, the conservative blogs are basically saying the same thing as the progressive sites. No one likes this.

Posted by: g. powell on September 21, 2008 at 8:08 PM | PERMALINK

So, the Votemaster @ The Electoral Vote (finally, an upward movement for Obama) has this wee tidbit about Paulson:

The two main players trying to solve the Wall St. crisis are an odd couple, a fist-pounding, hyperactive, driven, teetotalling Christian Scientist, treasury secretary Henry Paulson, and an intellectual, consensus-seeking, cautious, Jewish Ivy League professor, Fed chairman Ben Bernanke. The NY Times has a nice biographical piece on their personalities and how they work together.

A "fist-pounding, hyperactive, driven, tea- totalling, Christian Scientist"??? I didn't know that. And it doesn't make me trust him more. At all, at all.

Posted by: exlibra on September 21, 2008 at 8:10 PM | PERMALINK

NO BAILOUT FOR WALL STREET WITHOUT LIMITS!
NO BLANK CHECKS FOR THIS ADMINISTRATION!

Hundreds of billions of dollars have already walked out the door with the people responsible for this, but we don’t have to set them and ourselves up for them to do it again!

Although the U.S. taxpayers will be paying for the funding of the “Wall Street Bail Out”, we won't have anybody at the table representing our interests when the bill gets drafted ( however, lobbyists for BAC, Goldman,Morgan,Pimco etc. will all be there). Here are some suggestions for what ought to be in the bill:

1. Only U.S. domesticated banks are eligble to participate- - no foreign banks or U.S. subsidiaries or affiliates of foreign banks are eligible. No entity that holds MBS for investment purposes only(i.e. hedge funds and mutual funds) are eligible to participate. (The purpose of the Fund is to free up capital to loan to U.S. borrowers- - not to bail out speculative investors.)

2. Any entity availing itself of the Fund can not pay any officer, director or employee more than the annual pay of the highest paid U.S. government civil servant until the Fund recoups 100% of the amounts advanced by the Fund to that entity, together with interest.

3. No officer or director of any entity availing itself of the Fund can sell stock in that entity until the Fund recoups 100% of the amounts advanced to that entity, together with interest.

4. No dividends may be paid by any entity availing itself of the Fund until the Fund recoups 100% of the amounts advanced by the Fund to that entity, together with interest.

5. In the event the Fund does not recoup 100% of the amounts advanced to an entity within a reasonable period (i.e. 3-5 years), the Fund will receive warrants equal to 79.9% of equity securities of such entity.

6. All amounts advanced by the Fund to an entity must be placed in a segregated account and LOANED to customers of that entity at commercially reasonable rates and terms. Such amounts can not be used by the entity for trading or investment purposes (remember were doing this for Mainstreet, not to create the next bubble.)

7. The costs of the Fund(i.e. the temporary federal agency) will be ratably paid for by Fund participants by issuance of warrants in the participating entities or by cash payment.

If an entity is not willing to comply with the above, then they are not eligible to participate.

As it appears that the "Fund" is a done deal, it would be great if we came up with a list of conditions to protect the U.S. taxpayer.

Posted by: GAJohn on September 21, 2008 at 8:10 PM | PERMALINK

Krugman asked a pertinent question that needs answering in his article

...the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.

I sure hope that the Democrats do not cave in OR worse, come up with some other silly conditions that need to be attached. We deserve answers and a REAL solution,not a bandaid to bail out the large companies and their executives.

Posted by: on September 21, 2008 at 8:34 PM | PERMALINK

WOW... I'm supposed to be impressed with this Draft because Paulson explained in the definitions section what secretary and United States means.

He forgot to mention the more important issue: Who decides what a 'fair' market value is for those so called Mortgage-Related Assets

As Krugman asks in his latest No Deal post

So is the plan to pay premium prices to the most troubled institutions?

We deserve to know, especially because he does not want there to be ANY accountability on his part.

Posted by: bruno on September 21, 2008 at 8:40 PM | PERMALINK

Thank you TCinLA for the Op-Ed from Bernie Sanders who said:

This is the most extreme example that I can recall of socialism for the rich and free enterprise for the poor.

This needs to be repeated by Obama.

Does this fit on a bumpersticker?

McCain/Palin '08: Socialism for the Rich; Free Enterprise for the rest.

Posted by: bruno on September 21, 2008 at 8:42 PM | PERMALINK

It will also be necessary to counter the arguments of "lower conservatives" that liberal ideas of egalitarianism were mostly at fault here: the pressure to lend to lower-class folks so they could have homes. No, that wasn't the main problem, since proper regulation would still have ensured proper payment to income ratios, requirements for honest income reporting, no "bubble" loans with higher payments to come in the future, no packaging of loans into weird financial instruments, etc.

This may all seem pretty clear to you readers, but there's going to be pressure to blame this on the less responsible parties - gird your loins, as they used to say, and be prepared to fight about it.

tyrannogenius

Posted by: Neil B on September 21, 2008 at 8:44 PM | PERMALINK

I hope the Democrats try to get some decent regulation and structural reform for all that money.

Don't just hope. Contact them and let them know in no uncertain terms that if they do NOT do this, you'll be staying home on election day.

Because really, what's the point? Might as well let the Republicans sit atop the shitpile they created and ride that fucker straight into the ground. And the sooner, the better. Any Dem complicity in this, without some really bitter pills being forced on the mothers who caused it, just delays the inevitable.

Posted by: Jennifer on September 21, 2008 at 8:46 PM | PERMALINK

"Throughout all this, I've been torn between believing in market discipline and wanting to avoid moral hazard on the one hand, and thinking that of course that commitment flies out the window if we're seriously threatened with economic collapse, on the other."

Hilzoy, I don't think this is the right way to frame the issue. It's looking increasingly like Paulson's proposal will do nothing to avoid economic collapse, but only forestall it. The essence of the problem is that finance industry has been allowed to construct arrangements that allow themselves to profit while other parties bear the risk for their deals. Paulson's proposal is essentially that taxpayers should allow them to do this ONE MORE TIME --- after which, for some reason, the financiers will be good boys and girls and not make such deals again. This is nonsense, of course, because acquiesence to Paulson would only communicate to the finance industry that they can still get away with foisting financial risk off onto other parties. The result could only be another worldwide financial crisis a few years (months? --- WEEKS?) down the road. The only solution at all is to punish the financial industry for its recklessness and dishonesty, severely enough to remove any incentive to create unstable financial arrangements.

Shorter me: we don't have to choose between punishing capitalist greed and saving the economy. Indeed, we cannot choose. At this point, the two goals are essentially identical.

Posted by: ChristianPinko on September 21, 2008 at 8:48 PM | PERMALINK

The Democrats should resist attaching silly conditions such as 'help for homeowners' etc...

What they SHOULD do is attach ONE item - ONE item only.

Repeal the Bush tax cuts for the rich, to cover the debt.

Let the Republicans explain WHY we should not do that?

Posted by: bruno on September 21, 2008 at 9:01 PM | PERMALINK

I just sent the following message to the congress people for my district (Gordon Smith - Greg Walden - Ron Wyden)

In regards to the Paulson Bail out proposal. I urge you NOT to support it unless there is a guarantee:

1) That the government gets equity in the companies who request assistance.
2) The Treasury Department pays a FAIR market value for the debt, NOT an inflated value to aid the banks.
3) Congress retains oversight.
4) CEO compensation for the financial sector is discussed

Please do contact your own representatives and send them something similar. Here is the link for easy access to the representatives of your state.

This is too important to assume someone else will do it.

Posted by: bruno on September 21, 2008 at 9:24 PM | PERMALINK

Mike Shedlock has a pretty good idea as well: Call any senator who could possibly be inclined to fillibuster this bail out.

Regardless of whether you're a Conservative Republican or a Liberal Democrat, or a moderate on either side.

At the bottom of his web page is a list of all the senators including the contact information.

The senators are: Shelby, Bunning, Kyl, Ensign, Hagel. Don't forget to contact Obama and McCain as well.

Posted by: bruno on September 21, 2008 at 9:33 PM | PERMALINK

1. Why as a democrat do I have no faith in Pelosi and Reed. I don't. Something wrong with that.

2. Hilzoy, the best laypersons post on the situation I've read to date. You hit a cord. Not a good one.

3. I always figured that Bush would grant a bunch of pardon's at the end of his term that would make Clinton's look innocent. I just didn't expect a pardon from Wall Street. My bad.

4. What is scary is Bush has three months left in office. How many other shoes are going to drop.

Posted by: Scott F. on September 21, 2008 at 9:41 PM | PERMALINK

First, let me say, that this is THE.BEST.POST.EVER! Thank you hilzoy for expressing everything I've been feeling over the past week!!

I apologize if I repeat anything that has been said before in the comments here or in other posts, but I haven't been on-line a lot recently (having just lost MY job! and trying to find a new one) to read...but I want to add my 2 pennies.

First, if you really want to "bailout" the financial sector AND help the citizens of this country...instead of buying up the bad debt, why doesn't the government just "pay off" the mortgages of those that are going to default at pennies on the dollar. That is, give the banks a portion of what the mortgages would have returned and give the American citizen the deed to their abode free and clear. What better investment to make in our citizenry and country that that? You could even tie it to some type of reverse tax credit (additional tax) for the taxpayer getting the benefit of the largesse or/and offer for them to participate in some type of service to our country: Americorps, military service, whatever...


Posted by: Gridlock on September 21, 2008 at 9:43 PM | PERMALINK

Anonymous posted this and I think it needs to be in this thread too:

Declaring existing CDS's void might just work. The ever-brilliant "b" at Moon of Alabama explains.

http://www.moonofalabama.org/2008/09/solution-declar.html#more


Posted by: slanted tom on September 21, 2008 at 9:44 PM | PERMALINK

Just realized I forgot my second...

Second, I lay total blame for this mess at the feet of the Fed, the mortgage industry and Bush. The Fed for keeping rates low enough, long enough to get everyone running to buy a house, the mortgage industry for putting people into ARMs and subprime loans that they KNEW these people would never be able to sustain for long, Bush for encouraging people to be part of the "ownership society" and then calling for a strong dollar policy and then the Fed again for raising rates at a frantic pace, knowing full well that there were tons of people out there with these bad loans.

Posted by: Gridlock on September 21, 2008 at 9:49 PM | PERMALINK

I was skimming through the headlines of NYT, wondered (but not enough to read the whole article) WTF, bailing out *our* Wall Street wasn't enough for those rapacious thugs; why we had to bail out everyone else (an their uncle), all over the world, as well... And here comes Josh Marshall, making that last little connection for me: Gramm (and, therefore, McCain) have "vested interest" (vested? Sounds to me like their entire *wardrobe* -- shirt, pants, suspenders, an'all -- is hanging on that coat hanger) in saving USB.. How could I have forgotten?
http://talkingpointsmemo.com/archives/218587.php

Posted by: exlibra on September 21, 2008 at 9:49 PM | PERMALINK

In regards to Gridlock's proposal. I do not agree with giving the homeowners who are risking loosing their home the deed to their house free and clear.

What about all the people who have been dutyfully paying their mortgages every month?

What about all the people who own their home free and clear, or have a very small balance left? I'm not talking about the wealthy here' I'm referring to people who are older and lucky enough to have paid of their homes before retirement.

What about all the people who rent and do not have a mortgage, yet also feel the strains of increased prices?

What do you suggest you do for those people?

Posted by: bruno on September 21, 2008 at 9:52 PM | PERMALINK

I agree with just about everything you say (mostly), except you left out one part of the puzzle.

Democrats helped create this mess by encouraging loans to un-credit worthy people as a social justice move.

Congress with a few exceptions, wasn't calling for regulation when everyone was making money and the home ownership rate was going up among minorities.

Quite frankly, I am disgusted at Republicans and Democrats at this point.

Everything is fucked, and both parties are responsible.

Posted by: rory on September 21, 2008 at 9:54 PM | PERMALINK

I don't care about equity or debt in the companies that request assistance. I don't care about what value is attached to assets held by companies that request assistance. I don't care about compensation of individuals at companies that request assistance.

What I care about is that taxpayers be made whole for costs incurred by companies that obtain assistance from taxpayers. There's a simple way to do that: a tax on the financial services industry until those costs are recouped. If necessary give them some time squabble about how and who amongst themselves will pay it, but make it clear that those costs will be recouped.

We, the electorate, simply need to make it clear that the quid-pro-quo for Paulson's blank check is that if the industry can not or will not come up with a plan to protect taxpayers in short order, that we will do it for them, and take an additional pound of flesh for the aggravation.

Posted by: has407 on September 21, 2008 at 10:00 PM | PERMALINK

McCain wants to limit execs to $400,000

Posted by: rory on September 21, 2008 at 10:07 PM | PERMALINK

rory I agree that Democrats and republicans are to blame. However, the false equivalency has to be talked about too.

republicans shoulder about 90% of the blame because that is what they advocated for.

Democrats about 10% of the blame because the lack the spine to stand up for their principals.

Posted by: bruno on September 21, 2008 at 10:08 PM | PERMALINK

It's simple: This country cannot afford the Republican party.

Posted by: Bebimbob on September 21, 2008 at 10:08 PM | PERMALINK

America, are you better off now than you were eight years ago?

Posted by: Dennis - SGMM on September 21, 2008 at 10:21 PM | PERMALINK

My friends, i have a plan. We're going to package up all that bad debt, and give it to Sarah Palin, and she's going to sell it on E-Bay. Make a profit, too! Just say "thanks, but no thanks" to insolvency on a national scale.

Posted by: Mark on September 21, 2008 at 10:27 PM | PERMALINK

Hell, even Newt Gingrich doesn't like Paulson's plan. This is his comment at NRO online:

"Before D.C. Gets Our Money, It Owes Us Some Answers

Watching Washington rush to throw taxpayer money at Wall Street has been sobering and a little frightening.

We are being told Treasury Secretary Henry Paulson has a plan which will shift $700 billion in obligations from private companies to the taxpayer.

We are being warned that this $700 billion bailout is the only answer to a crisis.

We are being reassured that we can trust Secretary Paulson "because he knows what he is doing".

Congress had better ask a lot of questions before it shifts this much burden to the taxpayer and shifts this much power to a Washington bureaucracy.

Imagine that the political balance of power in Washington were different.

If this were a Democratic administration the Republicans in the House and Senate would be demanding answers and would be organizing for a “no” vote.

If a Democratic administration were proposing this plan, Republicans would realize that having Connecticut Democratic senator Chris Dodd (the largest recipient of political funds from Fannie Mae and Freddie Mac) as chairman of the Banking Committee guarantees that the Obama-Reid-Pelosi-Paulson plan that will emerge will be much worse as legislation than it started out as the Paulson proposal.

If this were a Democratic proposal, Republicans would remember that the Democrats wrote a grotesque housing bailout bill this summer that paid off their left-wing allies with taxpayer money, which despite its price tag of $300 billion has apparently failed as of last week, and could expect even more damage in this bill.

But because this gigantic power shift to Washington and this avalanche of taxpayer money is being proposed by a Republican administration, the normal conservative voices have been silent or confused.

It’s time to end the silence and clear up the confusion."

Posted by: bluestatedon on September 21, 2008 at 10:30 PM | PERMALINK

Hey rory, go back up to my comment at 8:44 PM. Really, we could loan to the lower-income crowd without screwing up the whole world financial system. That egalitarian impulse was just a small part of what happened. Heck, I'll just repeat the point:

It will also be necessary to counter the arguments of "lower conservatives" that liberal ideas of egalitarianism were mostly at fault here: the pressure to lend to lower-class folks so they could have homes. No, that wasn't the main problem, since proper regulation would still have ensured proper payment to income ratios, requirements for honest income reporting, no "bubble" loans with higher payments to come in the future, no packaging of loans into weird financial instruments, etc.

Posted by: Neil B on September 21, 2008 at 10:30 PM | PERMALINK
After record profit, Lehman's compensation spending rose 9.5 percent to $9.5 billion last year, including bonuses estimated at $5.7 billion. The top five executives -- the most vulnerable to creditor claims of excessive pay -- got $81 million, according to a March 5 proxy statement.

That's from a Bloomberg report. Can you imagine? They did so bad, yet they found money in the range of billions to compensate themselves.

I wonder how high the total compensation was for the banks Paulson is thinking of 'saving'?

I would certainly want every executive at those companies to pay back their compensation from the last 2-3 years. After all, I'm sure they weren't hurting all that bad.

That alone could possibly pay for the $700 billion requested.

Posted by: bruno on September 21, 2008 at 10:32 PM | PERMALINK

I completely agree Neil, in principal. Except reality was completely different.

The bar was lowered. I am completely for encouraging home ownership in minority and poor communities, but only with the same stringent standards that everyone else has.

Bush was just as guilty as everyone else with his "ownership society" mantra.

Home ownership is an option, not a privilege or a right.

Posted by: rory on September 21, 2008 at 10:44 PM | PERMALINK

Neil, I completely agree.

The problem is that the reality of the situation was that with a nod and a wink, the standards were lowered.

Now if the whole thing had been limited to poor and minority neighborhoods, there would of been no problem.

The issue happened when Wall Street expanded the concept of lower lending standards to everyone else and figured out how to profit out of it in a giant ponzi scheme.

Don't think I am blaming liberals. Everyone is guilty here.

They all screwed us.

Posted by: rory on September 21, 2008 at 10:49 PM | PERMALINK

So if the plan is to give one person ultimate, unreviewable control of $700,000,000,000, why can't congress just as easily give this control to a few appointed individuals who report to congress?

What benefit is gained by investing all the power into Paulson? Markets operate best in the open, and the current plan seems more like a dark room.

Posted by: tomj on September 21, 2008 at 10:51 PM | PERMALINK

bruno,


I would say more like 60/40 republicans fault, but I agree that deregulation was the major contribution.

There were plenty of Democrats in the pocket books of Wall Street as well.


Posted by: on September 21, 2008 at 10:55 PM | PERMALINK

tomj,

This is exactly what McCain proposed earlier today. He even named names.

I think we need to appoint an oversight board of the most respected people in America, such as maybe Warren Buffett, who's a Obama supporter; Mitt Romney, Mike Bloomberg, so that there can be some kind of oversight of, instead of just putting all this responsibility on a person who may be gone in four months."

From my link above.

Posted by: rory on September 21, 2008 at 10:59 PM | PERMALINK

Josh Marshall asks an obvious question:

The Big Question: 2+2=4?
09.21.08 -- 8:48PM
By Josh Marshall

"The New York Times reports this evening that "foreign banks, which were initially excluded from the [Wall Street bailout] plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks."

The Times further reports that two of the biggest foreign banks in need of such relief are Barclays and UBS. In fact, my understanding is that UBS is more on the line here than any other foreign bank.

Let's add this up.

John McCain's top economics advisor, who is widely believed to be his choice for Treasury Secretary, should he win in November, is former Sen. Phil Gramm. (Indeed, just last night his spokesman refused to say Gramm wouldn't be McCain's choice for Treasury Secretary.)

Gramm is both vice chairman of UBS's US division and a lobbyist for UBS.

If UBS successfully lobbied over the weekend to get in on the bailout, what was Gramm's role in the lobbying?"

http://talkingpointsmemo.com/arc...ives/ 218587.php

Posted by: bluestatedon on September 21, 2008 at 11:04 PM | PERMALINK


Now we have a little better idea what this bailout consists of and it stinks.
So now it goes before congress where it will be amended.
Well, I have a couple of amendments for them.
Let's start with the people really responsible.

First, a substantial pay cut for those responsible. Say a 50% pay cut for congress and a similar cut for their perks.

Next, fire all bureaucrats that had a hand in this mortgage mess.

Insist in all earmark funds be switched to the help on the bailout.

Any financial institution that accepts funds will be required to replace their entire board of directors and senior management. (Why in heaven’s name would you give money to people that have a proven propensity to screw up everything they touch).

Governmental assistance to anybody to employ legal assistance if that person was in anyway mislead about the conditions of the loan. (By the way I have jailed more than one thief for that sort of theft it is a violation of the Business and Professions Code in the State of California).

Carl Ecklund

Posted by: Carl Ecklund on September 21, 2008 at 11:32 PM | PERMALINK

I believe that what Paulson already knows (but we don't) is this:

The financial sector is already toast. Virtually all of the actors who have been dealing in this toxic debt are already insolvent (if the securities were priced at fair value). This $700 billion won't save them -- or more precisely, enough of them to prevent a collapse -- and the result will be a calamity, regardless.

The only way to save any of them is to overpay for the debt. Not only is that unconscionable, the Treasury can't print enough money fast enough to save most of them. Therefore, all this plan would accomplish is to put $700 billion at the discretion of Paulson and the administration to save some of them -- their friends and the ones with the most influence.

Once we realize that the financial sector will collapse in any case, our thinking changes drastically. Instead of pretending to try to stop the unstoppable, we need to figure out how to mitigate the effects of this disaster on the people and taxpayers of the United States, especially the homeowners going into foreclosure.

Meanwhile, I think we should let the free market forces do their will. Let the unregulated financial firms just go belly up -- and straight into the arms of Federal receivership, just as if they had been regulated S&Ls and banks. We can set up a real RTC just as we did in the 1980s.

Posted by: bob5540 on September 21, 2008 at 11:41 PM | PERMALINK

To my elected representative,

Please STOP the lunacy that is the proposed $700 billion bailout of the financial industry. Make no mistake, this is not a bailout of the citizens you were elected to represent. This is a bailout of the corporations from whom you've accepted money and other support, using money you are taking from the citizens you were elected to represent...and from their children...and from their children.

The citizens you were elected to represent are substantially protected from major changes in the financial industry via FDIC, SIPC, and excess SIPC insurance on their bank and brokerage accounts. Only those citizens who freely chose to invest in financial companies will suffer investment losses, just as those did who freely chose to invest in technology companies before the dot com bust. That's the way it should be.

The financial companies in trouble are the ones who freely chose to make bad decisions about what they invested in, and about how they managed risk and cash flows. They deserve to fail so that a new generation of financial companies which are better managed can flourish, making it much less likely that the current situation will ever repeat. The financial companies in trouble do not deserve to be gifted, or even "loaned," taxpayer money so that they can continue their past mistakes. If they are able to avoid failing by changing quickly into a next-generation financial company WITHOUT a taxpayer-funded bailout, then they have proven they deserve to survive. Whether new or re-born, we need better managed next-generation financial companies in our economy.

You are free to use the arguments made here to publicly justify your vote against the proposed $700 billion bailout.

I am asking you to vote AGAINST the proposed $700 billion bailout, in any form. I will record which of my representatives vote FOR the bailout, and will vote AGAINST them and their parties in the November election. I am also urging my friends, colleagues, and community to do the same.

Warm regards,
David

Posted by: David on September 21, 2008 at 11:49 PM | PERMALINK

If it is true that a deal has been struck for international banks (Barclays, UBS) to also be part of the bail out.

Here's a suggestion, since it seems to be inevitable, and that the Democrats will be caving to Bush on this one again: You get the $700 billion BUT not a dime more. AND... the institutions that take advantage of the deal have to turn over ALL their mortgage related debts.

This would include the good ones as well. They get to start with a clean slate, and the tax payers get a pretty good deal, because the value of those assets will be worth well more than the $700 billion paid for it. The government just needs to sit on it for a while, until the markets settle down and they can start selling them to investors.

Posted by: bruno on September 21, 2008 at 11:57 PM | PERMALINK

Bruno,

I was not advocating for homeowners to get their deed free and clear...I suggested taxing them more and/or making them work for the betterment of society... go back and re-read.

I just read your last post and you're calling for the Nationalization of the mortgage industry. It won't work. Who will make the loans going forward? This is about liquidity more than anything. I agree with the poster above who said

1) No foreign banks or american subsids. of foreign banks (let their countries bail them out)

2) Any money given to these institutions can only be used to MAKE LOANS ( liquidity not covering losses)

3) Limit pay for officers/directors

4) Treat the money as a loan and make the entities pay it back, with interest.

5) Eliminate any dividends these entities pay.

6) Make any entity that participates in the 'Fund' pay for the administration of the program.

Posted by: Gridlock on September 22, 2008 at 12:25 AM | PERMALINK

Bushcon are looters. Bushcon always have been.
bushcon will install a firewall no matter what they say.Really.Does it matter?
Have bushcon been honest about anything? Have bushcon performed well at any time?
Anyone who is even close to someone close to bushcon has terminal brain disorders: the lack of any ability to determine correct thinking or action.
Remember kenron lay, kenron lay, kenron lay is a bushcon.Looting as they lie. Lie and loot.
Just keep everyone distracted.
Do you think because bushcon have inserted some fairly new names into this mess that these new names are different?? That these guys are different? Not in on the take?
You know what 1% of 700 billion to 1 trillion is?
What if they get only 1% for pulling this off.And hey, what if they get 2-3%. You think they can't say just about anything for that amount?
All this has been planned 30+ years since dickman scrubbed floors for dickman 1.
They will not let go.
Bushcon want it all and have the looting planned for all.
Bushcon need the looting done while this (non)admin is still ........whatever it is you can call what they do.Swilling sewage or something like that.
To put a stop to the crime will take more than deep thinking and discussion.
This looting has been in action for 8 years straight.
The snowball has great mass now.Hard to stop with words.
Somebody give me a cheezburger.

Posted by: johnsnottoodistracted on September 22, 2008 at 1:32 AM | PERMALINK

Can we at least insist they rename Reagan International? Perhaps a little post script could be added to all the statues and bronze plaques littering the country, "that whole government's the problem thing... my bad."

Posted by: on September 22, 2008 at 1:43 AM | PERMALINK

Call Pelosi @1-202-225-0100 NO BAILOUTS.

Posted by: Mike Meyer on September 22, 2008 at 3:05 AM | PERMALINK

I agree with most of the postings above. NO bailout without stringent regs to prevent future such disasters. In fact, I favor no bailout at all.

One thing not mentioned in the discussion above is that one of the reasons, and big reasons, for this whole debacle is that housing costs became out of reach for most people.

I read the other day that an economist noted that the average price to buy a new house, nationwide, had "fallen" to $350,000, and that he expected that it would probably bottom out at $250,000. How many of us can afford to buy a house at a quarter of a mil with normal practices of 10% down, reasonable payments on a 30 year mortgage, with reasonable interest, no ARMs, etc.? When you have police, firefighters, nurses, teachers, librarians, etc., not able to live in the cities where they work because of prohibitive housing costs, there's something wrong, folks. Not to mention the costs of long-distance commuting these days!

If you're going to have a housing market, you need buyers. So in addition to all the rampant greed leading to extremely poor investment choices, you have the fact that most people who wanted to buy a new dwelling couldn't afford EXCEPT with subprime loans, which meant that they couldn't afford new houses, period. As well as much better regulations, housing costs are going to have to come down a LOT more before there is hope of stabilization and a healthy housing industry. And I don't see that happening as long as we bail out the people responsible for the problems.

Posted by: Wolfdaughter on September 22, 2008 at 4:01 AM | PERMALINK

This bailout officially marks the end of the Reagan Revolution and the ideology based on his famous line, "Government is not the solution to our problems, it is the problem."

Reagan Revolution
b. January, 1981 d. September, 2008
R.I.P.

P.S. Ironically, 27 years later, the Iraqi PM is saying the same thing about the U.S. government that Reagan said in his first inaugural address. Go figure!

Posted by: pj in jesusland on September 22, 2008 at 5:53 AM | PERMALINK

Here's my proposal:

1.The bailout fund is overseen by Treasury Sec, Congress and an impartial board with equal say on how the money is allocated.

2. Start bailout payments at the homeowner mortgage level (beginning point) rather than the top-end derivatives bundles level (end point).

The plan should hire civil servants to act as credit counselors & advocates for the homeowners.

3. 6-month moratorium on foreclosures (one house per customer. limited to $300,000 or less valued property. those who own more than one foreclosed property can choose which one to enroll in this plan.) (some other kind of deal for owners of apartment buildings with benefits to them in agreeing to rent control.) (another deal for business property owners)

4. Set a fixed rate and allow all homeowners (even those not in financial difficulty) to reset at this fixed rate.

5. Analysts working for the plan should start unraveling the bundles. Spread the pain around.

6. Any financial institution considered in this bailout plan must pay into the plan a percentage of the compensation they paid top management & shareholder dividends in the last year.

6. Investigate and prosecute evildoers starting at the top of the chain.

Posted by: Tilli (Mojave Desert) on September 22, 2008 at 6:53 AM | PERMALINK

8. Universal healthcare.


Posted by: Tilli (Mojave Desert) on September 22, 2008 at 6:55 AM | PERMALINK

Clinton got us out of debt again.

Clinton didn't get us out of "debt". He stopped running "deficits". The previous debt remained. It took us over 200 years to run up less than trillion dollars debt. IN 28 short years of radical Republican supply side, trickle down economics these nuts have ballooned that debt to almost $10 trillion. It looks like it'll be well over $11 trillion dollars by the time Bush leaves office.

I think it behooves us to tally up all the add'l. debt they've added this year before Obama takes office because in 2012 they'll try to blame it on him.

Posted by: markg8 on September 22, 2008 at 7:33 AM | PERMALINK

This bailout plan is just that, a bailout. The U.S. taxpayers assumes the all the bad debts and the bills run up by a bunch of drunken sailors just like the S&L debacle and just like Chrysler. Nothing will change except for the fact that the Washington and the empire now has all economic power ceded to them by Wall Street because the Federal can do the one thing Wall Street can't do and that's print money out of thin air and back it with the money confiscates from the taxpayer.

I'm willing top risk economic chaos if it means changing the system we live under. Otherwise this plan solves nothing. The Fed will just wait for the next bubble it will create and then bailout pinvestors when it pops and the cycle will continue. What needs to change is the U.S. can no longer afford all of its overseas commitments and all of its overseas oil paid for by Chinese credit. It eaither has to retrench as painful as it will be or the same bad system goes on and on and on, indefintely.

Posted by: Sean Scallon on September 22, 2008 at 7:34 AM | PERMALINK

Wealthcare.

During the last year of the Bush presidency, a new federal agency was formed. Wealthcare is designed to cushion mistakes for those who have incomes beyond those of normal Americans.

It is hoped that by keeping the rich rich, our economy will remain strong.

Wealthcare.

Posted by: Tom Nicholson on September 22, 2008 at 7:40 AM | PERMALINK

Tilli:

9. Tax the living shit out of the wealthy.

10. Regulate the shit out of the financial industry.

11. Restore the capital gains tax.

12. End the war in Iraq tomorrow.

Posted by: chrenson on September 22, 2008 at 8:14 AM | PERMALINK

Just to crank things up a notch---CNBC now notes that the cost of this "$7 billion dollar handout" to the uber-greedsters might actually be $1.8 trillion. Given that, I'd expect the markets to start into yet another downward spiral---and some of those investors are going to realize that a rather nasty anniversary-date---OCTOBER 29---is only 37 days away.

That date will come exactly 6 days before the presidential elections....

Posted by: Steve on September 22, 2008 at 8:15 AM | PERMALINK

Why should the taxpayers buy troubled assets? The government shoud only be willing to buy sound assets. If that money is used to make sound loans, then the taxpayers can buy those sound loans and put more money in the system.

Posted by: david1234 on September 22, 2008 at 9:44 AM | PERMALINK


there's a video on a website called collaborate with fate - http://collaboratingwithfate.blogspot.com/ - scroll down to the 47 minute video under "credit Circulation, Coins & Collusion - verrry interesting, at teh bottom of it all.

I have no idea what his purely libertarian world would look like but Ron Paul is really interesting on money - ronpaul.com - and i think he should have serious representation in congress, keeping the rest of them honest, and the financial sector clean -

Posted by: chesterstpatrick on September 22, 2008 at 10:29 AM | PERMALINK

If you listened to Hank Paulson on the Sunday political sitcoms, you undoubtedly heard him not explaining why “we” need to spend hundreds of billions of dollars in mortgage-backed junk securities.
.
He may as well have said “We don’t want the smoking gun to be a mushroom cloud”, because it’s the same fear-based scam they ran on Congress to buy a war back in 2003.
.
Granted, there’s a serious mess in the financial markets, but what moron would give billions to the criminals that caused the mess in the first place. And what - or who - are they trying to save anyway?
.
While you heard Paulson talking about “mainstream companies”, American workers pensions, and even farmers, what he was decidedly quiet about was sovereign wealth funds and foreign banks in China, Japan, Europe, the Middle East and Russia.
.
To get an idea of just who’s getting bailed out one need only take a glance at the list of foreign billionaire stockholders at Bear Stearns, which received a $29 billion guarantee from the Treasury Department.
.
Or consider the fact that a majority of the stock in AIG, ($85B bailout) is held by foreign investors. Worse yet, look at the $200B nationalization bailout of Fannie Mae and Freddie Mac. Their top bond holder is none other than the Chinese government.
.
These are not minor omissions.
.
Even more troublesome is the fact that on July 15, 3008 Mr Paulson testified as follows:
.
“Let me stress that there are no immediate plans to access either the proposed liquidity or the proposed capital backstop.”
.
Yet here we are, less than six weeks later and he has already issued more than $300B in guarantees and nationalized the two largest mortgage companies in the nation.
.
In light of the massive discrepancy between his words and his actions, it certainly seems appropriate for taxpayers to ask about Mr. Paulson grasp of the situation.
.
Whether he was being dishonest or simply was unaware of the scale of the problem, it raises grave concerns about his ability to unilaterally handle the situation.
.
And one only becomes more suspicious when just two years ago Mr. Paulson himself received $18.7M in bonuses from the same Wall Street he is now bailing out.
.
The sentiment is also represented in his currently proposed legislation, which intentionally puts the stability of financial markets above the protection of citizens, stating “the Secretary shall take into consideration means for–
.
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.”
.
So if the stability of financial institutions comes before the protection of citizens, and the stability of financial institutions requires the protection of sovereign wealth funds and foreign banks, it seems clear that citizens of the United States of America have lost control of their government.
.
If any control of government is going to be regained, Congress must immediately reject this course of action and attack the underlying problem by assisting citizens in securing stable home loans.
.
Absorbing reckless financial institutions and funding their foreclosure activities will only create more devastated neighborhoods that cause greater declines in housing values, which in turn will create more trapped citizens that see foreclosure as their only alternative.
.

Posted by: Karen Hurtz on September 22, 2008 at 7:44 PM | PERMALINK




 

 

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